Ruth's Shares at $2 but Steak and Lobster Costs $39

Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) shares are ending 2009 just above $2 a share and in the past three months they have fallen 48%. Right now Chris Steak House is offering an "Irresistible Steak and Lobster" deal for $39.95.
Enjoy a 6 oz. filet paired with an 8 oz. lobster tail, served sizzling so your last bite stays as hot and delicious as your first.  If only the company shares were as tempting as its dinners.

Financial Facelift For Ruth (RUTH)
(247WallSt.com) Ruth’s Hospitality Group Inc. (NASDAQ: RUTH) is trying to get its financial house more in order.  The owner and operator of the Ruth’s Chris Steak House chain announced new financial steps on Dec 22nd that involve a private equity firm and should rework its credit facility and push out its debt maturity while giving it more flexibility to run.  Unfortunately, there is little excitement about this so far as it brings more dilution to common shareholders.

Ruth’s entered into an agreement with affiliates of private equity firm Bruckmann, Rosser, Sherrill & Co. Management, L.P. to purchase $25 million of newly created Series A 10% Convertible Preferred Stock in a private investment in public equity transaction, a “PIPE” investment.  The initial conversion price will be equal to 115% of the per share subscription price in the rights offering, provided that the initial conversion price will not be higher than $3.25 or lower than $2.90.  These funds will repay debt under its existing credit facility.  Ruth’s also plans to issue a stock offering of up to $35 million in new stock under supplemental prospectus filing.

The amendment to the credit agreement will reduce the revolving loan commitment to $130 million, down from $175 million, and will extend the scheduled maturity of the credit agreement out by two years to February 2015.  This will also give Ruth’s a less restrictive set of covenants under which it currently operates and will call for no financial covenant testing until the end of fiscal year 2010.  The amendment does provide for higher interest rates under the credit facility, with interest rates based on the actual leverage ratio, ranging from 3.25% to 5.00% above the applicable LIBOR rate or, at Ruth’s option, from 2.00% to 3.75% above the applicable base rate.

Ruth’s has successfully completed the sale of its corporate headquarters and intends to relocate to another location in Heathrow, Florida, with the sale generating net proceeds of about $9.7 million that are being used to reduce borrowings under the credit facility.

The stats on Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) is not looking good but if shares drop below $2, why not take a risk on a company that may return to greatness in 2010 should the economy make a comeback?  Sure shares could go lower, but its doubtful they will go below the 52-week low of 70 cents.

SOURCE: http://247wallst.com/2009/12/23/financial-facelift-for-ruth-ruth/

Disclaimer: No positions in any of the securities mentioned in this publication.